Convene panel to determine appropriate telecom policy direction: SeaBoard

Canada’s telecommunications regulatory framework is built on an inaccurate assessment of the true state of local telephony competition, and the CRTC’s current siloed approach to measuring competition is outdated, a new report from the SeaBoard Group argues. Old Bottles, New Wine asserts that technological innovation in the form of Voice over IP (VoIP) and landline substitution by wireless should force the commission to take a broader view of the local telecommunication services competition than it does currently. The study concludes that the commission should take a more forward-looking view of the telecommunications market with an integrated approach in which the silos of local, long distance and wireless no longer exist. It recommends the immediate creation of an advisory panel that can help provide both Industry Canada and the CRTC with guidance on adopting this type of approach. Local markets should be deregulated, the research firm notes in the report: "In assessing when deregulation should occur, the commission must take a much broader view of competition. Competition is a Darwinian metaphor. Freedom to compete, freedom to achieve success, and importantly, freedom to fail. A head-start metaphor, the commission’s chosen market-assistance model, by contrast, creates frail ephemeral competitors – not robust competition." The study contends, in direct contrast to the commission’s status of telecommunications competition report recently released, that competition already exists in the market, but that the CRTC isn’t measuring the market properly. The commission, says the SeaBoard Group, is suffering from a perspective problem. "We believe that Canadians do have choice, that the country is served by an intense, increasingly competitive market – but the commission can’t see or measure the dynamic with the tools it is using. The commission’s analytic microscope is set at too granular a level; the magnification is too high," reads the report. SeaBoard also raises the question of the appropriateness of the CRTC’s key tenet of facilities-based competition. In a footnote, the research firm highlights two examples of a resale model being a healthy driver to competition. "…There are numerous examples of resellers in other industries who provide significant competition to their suppliers for many years. For example, off-brand gas retailers have for years obtained their supplies from the same refineries that service their branded competitors. Internet travel agents have been so successful at selling the airlines seats that they have forced airlines to adopt their model," reads the footnote. The SeaBoard report contends that the impact of wireless substitution of local wireline and of VoIP will have such a dramatic impact on the local telephony market that if the commission refuses to act now, the incumbent operators could find themselves the dominant players in a shrinking market. The research cites two unregulated markets as examples of the impact of new technologies: the music downloading industry and the digital camera market. In the first case, the recording labels have sought to protect their content by prosecuting web sites promoting the downloading of music, while Apple Corp. came with new technology and developed a model of making money from consumers’ new music downloading affinity. Secondly, Kodak’s prior domination of the traditional camera film market has been eclipsed by the advent of the digital camera, and additional profitability is gained through the sale of ink and paper where Kodak is a minor player. "How much worse would the situation have been for those who had to consult a regulator for approval to take needed action, and then wait for an indeterminate period while the petition was heard, analyzed, countered by your competitors and then considered, before being able to take action, perhaps to save the firm?" reads the report. The study suggests that the CRTC needs to take a broader view of local telephony competition taking into account the impact of wireless substitution and VoIP because there is a shift already taking place. "A paradigm not bound by historical market segment constructs. A paradigm that embraces the change that is being wrought by technology rather than one which ignores it," the report states. The report projects wireless-only households will make up more than 15% of what is now considered the local wireline market by 2007, and as much as 25% within six years. VoIP will have an equally dramatic impact, states the report, indicating that it will represent 15% of the landline base, as a full substitute to local wireline by 2010. Ample evidence exists, writes the SeaBoard Group, and is within the grasps of both Industry Canada and the CRTC, to suggest a new approach is needed. The research firm indicates that a thorough analysis of the available data will reveal that local wireline is indeed subject to competition. SeaBoard suggests the best course of action is to convene an industry panel capable of highlighting the existing level of competition in the market and the need to take a broader view of telecommunications services competition. "The panel should be composed of industry experts. It should be charged with assisting the commission and Industry Canada to discern patterns and trends that will assist both entities in assessing the implications to the industry, the health of which they are both charged with the responsibility of ensuring," reads the report.

Convene panel to determine appropriate telecom policy direction: SeaBoard

News | December 8, 2004

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